Air Canada Can Rise 50% And Fetches 3x Earnings

Climb aboard. Canada’s largest airline is dramatically undervalued and free cash flow is set to soar.

At Air Canada, look for spending to shrink after this year, setting off a virtuous cycle that ends with free cash flow taking flight. The deeply depressed shares (ticker: AC.Toronto) could gain 50% or more in a year.

Canada’s airline market is a duopoly where two players control 80%. The market leader is Air Canada, with C$13.87 billion (US$10.54 billion) in revenue last year. It uses a hub-and-spoke model and caters to business travelers through its namesake brand and leisure travelers through its newer Rouge fleet. Smaller...